I just sent in the roughly $1500 payoff for my '04 Pontiac Grand Am. Once I get the title, it's mine, mine, mine!

We took the money out of our savings account; even though it was about 1/3 of the balance, we figured it was worth the risk to get rid of a debt eating up $250 each month. Granted, it would have been paid off in six months or so anyways and interest at this point was pretty negligible, but if we've got the money and can tolerate the risk, why wait?

That said, I'm glad to have that albatross off of my neck. I'm never going to buy another new car again (this one I did deliberately to establish some credit), and with tips I'm learning from this site, I'll never need to take out a loan to buy a car again, either.

It's funny because I'm almost in the same situation. I bought my car new and kinda regret it. I like it don't get me wrong but I don't think it's worth it. Next time I'll save cash and buy a 2-4 year old car.

I enjoyed the slide show and I totally agree that not having a car payment can have a super positive impact on one's finances. I'm also a big fan of paying the car payment to yourself in order to save up for a new or nused car which is what we did to fund my recent nused car purchase and we will start a replacement car fund next year for Mr. Sam's truck.

But, there is a big assumption in the slide show - the 12% average return on the mutual fund. Also, I'm not crazy about the trading up 2 or 3 times until you get to the decent car. For us, it made more sense to just save up for the final car and keep the old clunker that we alredy owned. I'd be interested in hearing from someone who followed Ramsey's drive rich plan and bought and sold two or three cars in the course of a couple of years. How much does that cost in taxes and fees?

Total cost of buying my 2000 Toyota Corolla with 130k miles was $2800 after all taxes and fees, so I felt his assumption was pretty reasonable for the first and second car. I really don't think the 12% is worth nit-picking over, since the jist of the argument still holds and the slides are meant to be more motivational than encyclopedic.

I actually liked the presentation a lot, and I was even impressed by the technique of trading your way up into bettter used cars. But I don't think it's nit-picking to question the 12% mutual fund return assumption for a number of very important reasons:

#1 The historical stock market avg isn't 12% - it's more like 8-10%

#2 Even the historical 8-10% rate is skewed by the unprecedented bull market that ran from 1982-2000

#3 The majority of mutual funds actually lag the market

#4 From peak to trough over the last year, the stock market is/was down around 40% - an average return doesn't necessarily mean a consistent or non-volatile return

#5 If you were planning on using the money in 3-5 years, would you really want it in the market? Wouldn't a CD or money market be better?

I agree with the general sentiment, however, and like I said, trading up one car at a time, is actually a pretty shrewd move. I just don't think it's going to turn you into a millionaire.

I will NEVER let another bank choke me up again on monthly car payments. I'm starting to put away some money, right now, towards a used beat up car. I just hope that I would find a reliable used car someday.

Nice video, btw. Rates and assumptions are high though. But I find really cool.

Does Dave's site have more slide shows like this one? I looked around and couldn't find a link from the home page.

For you 12% naysayers (which I am a fellow sayer)... what % return do you use when you plan for the future in investments in growth stock mutual funds? I generally use 8% which I figure may be a little overly conservative.

I think if you average any kind of a positive return by passively investing in mutual funds, index funds, or ETFs, you're probably doing about as well as can be expected in this environment. Remember--most actively managed funds fail to even match the market (S&P 500) due to fees and overtrading. And a lot of people were spoiled by the extended bull market of 1982-2000 where the average annual return was just under 15% a year.

Now, after a disastrous 2008, the S&P 500 is currently at levels last seen in 1997.

Here are a pair of links to help illustrate:

http://www.1stock1.com/1stock1_141.htm - This shows the annual return of the S&P 500 since 1975.

http://www.safehaven.com/showarticle.cfm?id=68 - And this one includes a chart showing the average annual returns for all secular bull and secular bear markets going back all the way to 1802. The average annual return per year in a secular bear market (like we've been in since 2000) is just 0.3%. This one, after factoring in 2008, is considerably negative (from 2000 to 2007, the S&P 500 ended at almost identical level from where it started - and then there was 2008).

Also, focusing on the "average" return misses another point - average isn't typical. If you look at the S&P 500 returns over the last 14 years (since 1995), 11 of those 14 years have seen double digit returns - both negative and positive. No one complains when the market goes up 26% (2003) or 13% (2006) but how soon are you going to be paying cash for your vehicle when the market drops close to 40% like it did last year?

Don't get me wrong - I really do like this strategy. My only complaint is that it's illustrated with an extremely best-case scenario. If you're going to passively invest your savings from not having a car payment, and since you're going to need the money in the somewhat near term, do yourself a favor and put it in CDs where it will at least be safe and you can count on a positive return.

I'm not saying you can't make any money in this market, but it requires active investing, not passive investing (and that's not intended as a slight or criticism toward anyone--some of my closest friends are passive investors).

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